Public Bill Committee

[John Robertson in the Chair]

Clause 14  - Top-up payments not taxable

Question (this day) again proposed,That the clause stand part of the Bill.

Cathy Jamieson: Just before we broke, I referred to the issue of top-up payments not being taxable. I had just begun to speak on that topic but had indicated that I wanted to put a couple of questions to the Minister with regard to a previous discussion around clause 11. Clause 14 states:
“A top-up payment is not to be treated as income for any purpose of the Tax Acts.”
Will the Minister explain whether there is any crossover between our discussion on clause 11, particularly with regard to income tax and corporation tax? Is there any other reason why clause 14 is necessary? Perhaps he could also supply any additional information about corporation tax, about which I questioned him earlier.

Sajid Javid: It is good to see you back in the Chair, Mr Robertson.
Clause 14 states that a top-up payment received under the scheme is not taxable in the hands of the charity or CASC that receives it. It has been included to bring the scheme into line with gift aid. Gift aid payments are repayments of tax, so are not themselves taxable. Grants are often taxable. As the top-up payments under this scheme are technically grants and not tax relief, without this clause, they might be taxable. The clause clarifies that they are to be treated in the same way as gift aid payments.
I hope that helps the hon. Lady. For extra clarity, I can clear up one point on corporation tax. If the top-up payment is used by the charity for non-charitable purposes, it would be subject to corporation tax. If it is used wholly for charitable or other qualifying purposes, it would be exempt.

Cathy Jamieson: I thank the Minister for that answer but, once again, it leaves me slightly more confused and concerned. I would have understood if it had simply been the case that the top-up payment was not connected to corporation tax. However, did the Minister not suggest earlier that any top-up payments that were not used for charitable purposes would potentially have to be repaid to HMRC? How can they be repayable if they are not used for charitable purposes and also count in relation to corporation tax?

Sajid Javid: The intention is that there would not be such a top-up payment. Ideally, if the scheme functions as it should, there should not be a top-up payment where it is planned to be used by the charity for non-charitable purposes. The whole purpose of the top-up payments is to support charities in their charitable activities. The purpose of clarifying that in clause 14 is to ensure that, in cases where a top-up payment is made, it is clear that it would be subject to corporation tax if it were applied in such a manner. That should not actually happen; it is worth making that point for the sake of clarity.

Cathy Jamieson: I genuinely had not expected the clause to be controversial. It seemed necessary and sensible to have something that outlined that the top-up payment was not to be treated as income for purposes of the tax Acts. However, given what the Minister has said, I am left with some confusion. Either a top-up payment that is used for non-charitable purposes has to be repaid because it has not been used for the purpose for which it was intended, or it is eligible to be counted as income for corporation tax. The two things do not logically sit side by side. If the Minister wants to intervene to give further information, that would be helpful. If he is not able to do that at the moment, perhaps he can let us know in due course. I am certainly not suggesting that the clause should not stand part of the Bill.

Sajid Javid: I can perhaps give a little more clarity. The way that this will work is that top-up payments are not subject to tax, however they are spent. The reason why it applies is that, if it turns out, once the top-up payment has been made, that it was wrongly used for non-charitable purposes—intentionally or otherwise—HMRC will be able to reclaim all or a portion of that top-up payment.

Cathy Jamieson: I absolutely understand that and I thought that we had got to that point earlier in the day. I am still struggling to understand how that relates to the corporation tax element.

Sajid Javid: If it is okay with the hon. Lady, I will happily come back to her to clarify that.

Question put and agreed to.

Clause 14 accordingly ordered to stand part of the Bill.

Clause 15 ordered to stand part of the Bill.

Clause 16  - Regulations and orders

Question proposed, That the clause stand part of the Bill.

Gareth Thomas: It would be helpful to have some sense of the Minister’s envisaged time scale for the statutory instrument coming before the House to set up the key administrative parts of the Bill referred to in clause 16. It would be helpful to know the answer to that simple question.

Sajid Javid: Allow me just to say a few words about the clause. It provides that any regulations and orders under the Bill are to be made by statutory instrument. All statutory instruments are to be agreed under the draft affirmative procedure in the House of Commons. The requirement that a draft of the instrument has to be laid and approved by resolution in the House of Commons will ensure that regulations and orders receive proper scrutiny. The only exception to that procedure is for transitional provisions made in connection with the coming into force of any of the Bill’s provisions.
During the debate on clause 11, I explained that we have published the draft regulations to be made under the Bill for consultation, and they will be subject to the affirmative procedure. The draft regulations were published in the second week of September, if I remember correctly. Regulations will be made as soon as possible after Royal Assent has been given to the Bill so that the scheme can start as planned in April 2013.

Question put and agreed to.

Clause 16 accordingly ordered to stand part of the Bill.

Clause 17  - General interpretation

Gareth Thomas: I beg to move amendment 34, in clause17,page9,line18,at end insert—
‘(e) industrial and provident societies that operate as charities.’.

To ensure that charities incorporated as industrial and provident societies are eligible under GASDS.
Amendment 34 would ensure that charities that are incorporated as industrial and provident societies are eligible under this scheme for the top-up payment of up to £1,250. Mr Robertson, you may be familiar with industrial and provident societies, given your considerable interest in the Co-op movement. I am lucky enough to be a Co-op MP and have long been familiar with industrial and provident societies.
Indeed, I am lucky enough to have a number of them based in my constituency. If you will indulge me, Mr Robertson, the Tithe Farm social club in Rayners Lane, which is home to the sadly less well known—it should be well known, but it is not yet—Rayners Lane football club, is one such industrial and provident society. You and other Committee members are extremely welcome to come to the Tithe Farm social club to take part in various social activities, of which dance and snooker are just two examples. There are other types of industrial and provident societies, including the famous Women’s Institute country markets, the excellent Lincoln retail co-operative society or, indeed, the renowned Co-operative Group, which is taking over Lloyds bank branches.
Industrial and provident societies have their roots in the self-help tradition of the Victorian era. Essentially, they break down into two types. The first is the more well-known co-op society, in which individuals come together, often pooling their purchasing power or their power as employees to get better results for themselves. I should make it clear that the amendment deals not with that type of industrial and provident society, but with the second category, which are those that carry on an activity for the benefit of the community, rather than for that of their members.
Such societies are known as community benefit societies, or bencoms. They include the many housing associations around the country, such as the Home Group, which has helped redevelop completely the Rayners Lane estate in my constituency, and is next to the Tithe Farm social club that I mentioned. Housing associations are the biggest group of community benefit societies, which also include social clubs and, as you will know, Mr Robertson, the new football supporters trusts. One of those is the Pompey supporters trust, which I hope is in the process of taking over Portsmouth football club. That is a great football club, although not one that I support or intend to support. The supporters trust, using the community benefit society model, might be able to protect the heritage of that club and see it achieve greater fortune.
The amendment is essentially a probing one to explore whether, and to seek reassurance from the Minister that, charitable industrial and provident societies are covered by the Bill. As I have made clear, only community benefit societies—the second category—can qualify as charitable industrial and provident societies. Clause 17(1)(a) states that, to be covered by the Bill, a charity has to be within the meaning given in part 1 of schedule 6 of the Finance Act 2010. That means that it has to be established for charitable purposes only, to be subject to the jurisdiction of UK courts, to have complied with any requirement to be registered under section 29 of the Charities Act 2011 and to be managed by people who are regarded as fit and proper. I am keen to know whether a community benefit society that meets all the other requirements, but is not required to register under section 29 of the 2011 Act, will still be within the definition of a charity for the purpose of the Bill. I shall come back in a second to why I raised that issue.
A potential alternative route under the clause for a charitable industrial and provident society to be registered seems to be covered by subsection (1)(d), which states that a charity can be
“a registered club within the meaning of Chapter 9 of Part 13 of the Corporation Tax Act 2010 (community amateur sports club).”
The conditions for such registration under the Act are that the club must be located in the European Union; it has to provide all its facilities in one member state; it is required by its constitution to be open to the whole community; it has to be organised on an amateur basis and, as its main purpose, it has to provide facilities for and promote participation in one or more eligible sports. It also has to be managed by fit and proper people.
When a club registers with HMRC, after meeting all the requirements, it is within the definition of “charity” under the Bill and, under the Corporation Tax Act 2010, can claim and use the gift aid provisions. However, there is no explicit statutory definition of “club” in the 2010 Act, so I should welcome confirmation that those who advised me on the drafting of the amendment are correct, and sports clubs using the industrial and provident society form of incorporation would be covered under the Bill. It would be a tragedy if a rugby club, for example, that was set up as a charity, can claim gift aid, has made claims for gift aid in three of the past seven years, understands the 80 pages of guidance that the Minister will publish to explain how the scheme will work, is not affected by the community buildings, is not affected by the trustee provisions and still has the will to claim £1,250 cannot do so. The rugby club that is the industrial and provident society should still be able to benefit from the Bill in the same way as another rugby club with exactly the same capacity, having achieved exactly the same criteria in that it is a genuine club organising genuine charitable activities, would be covered under the Bill. It would be wrong if the bencom rugby club would not be covered under the Bill because of a lack of tidy drafting. I look forward to the Minister’s assurance or explanation of such circumstances. If he cannot give me assurance today on subsection (1)(d) covering community benefit industrial and provident societies, perhaps he will look into the matter and return to us before the Bill is discussed on Report.
Only bencoms that are industrial and provident societies and have their constitutions specifically tailored to meet the conditions for charitable status could be charities under the general law. Industrial and provident societies have always been regarded as enjoying exempt status in respect of registration with the Charity Commission. I am raising the issue now because, since 2006, the policy has changed to ensure that all those that enjoy the benefits of charitable status either have to be registered with the Charity Commission or will be subject to regulation by another body. That other body will ensure that they comply with the equivalent requirements for charitable status—transparency, accounting and so on.
The Charity Commission allocated almost all the formerly exempt bodies to other regulators. As I have said, the alternative would have been direct regulation. Industrial and provident societies are among the few bodies that are left outside, in a general sense, and apparently no decision has yet been taken about who will regulate them. As recently as in July, a document on the Charity Commission website called “Starting Up: Exempt Charities” said, on page 11:
“No firm decision has been made on the future regulation of community benefit societies and friendly societies as charities. One possibility is that those which are registered as social housing providers may remain exempt, while others may lose their exemption if no suitable principal regulator is found.”
I might be wrong, but I suspect that a social housing provider or a large housing association would not necessarily want to seek advantage under the scheme by claiming potentially just £1,250. However, much smaller community benefit industrial and provident societies that are doing great things in our constituencies might want to benefit under the Bill, given the extent of the cuts in the funding for which charities may apply.
It would be useful to hear from the Minister whether he or his officials have had any conversations with the Charity Commission to try to resolve this potential lacuna around whether bencoms—community benefit societies—might be eligible for the scheme and, more generally, about how their charitable status will be policed—for want of a better word. I will be interested to hear from the Minister what might be done in this area.
Although I doubt that this is the case, some members of the Committee might think that industrial and provident societies are not terribly important in the great scheme of things. Such charities certainly have the lowest profile in terms of organisational form. People are often familiar with the notion of charitable status. Many are familiar with the idea of a charity organising itself as a limited company, and some will be familiar with the newer organisational form for those doing good in our constituencies: the community interest company. However, I suspect that very few will be aware of the model of the industrial and provident society model, including what that has meant in the past, and what we hope the model will bring to our constituencies in the future.

Jeremy Lefroy: I endorse what the hon. Gentleman says because an industrial and provident society is an extremely useful vehicle for a number of charitable purposes. I will be interested to hear what the Minister says about where that vehicle lies within the Bill. I have been involved in setting one up, so I know how it can be used for charitable activities to which other bodies do not necessarily lend themselves.

Gareth Thomas: I am grateful for the hon. Gentleman’s intervention. At the start of the Committee’s consideration of the Bill, his contributions hinted that he had sympathy with many of the positions set out by Labour Members, but then he went quiet, so I welcome his return to sympathising with some of our positions.

Mark Durkan: Born again!

Gareth Thomas: Let us see; we should not rush to a conclusion.
It would surely be a tragedy if those charitable organisations that are community benefit societies were to miss out on eligibility for the scheme simply because of a minor drafting omission.
I was lucky enough to introduce a private Member’s Bill that became the Industrial and Provident Societies Act 2002. That Bill enjoyed the support of the hon. Member for Christchurch (Mr Chope), who is well known for his enthusiastic support of private Members’ Bills. It turned out that Christchurch Conservative club was an industrial and provident society, and I was told at the time that it served very good pies. When I drew that to the hon. Gentleman’s attention, it helped to convince him of the need to be sympathetic to such societies. I do not know whether the Christchurch Conservative club is a community benefit society, but I suspect not. It is certainly difficult to think that anything labelled “Conservative” could be regarded as charitable, notwithstanding the intervention made by the hon. Member for Stafford. Nevertheless, it would be useful to hear from the Minister what analysis he has made of how the Bill will affect community benefit societies.
Let me cite two real-life examples of community benefit societies that are registered charities. North Lynn Discovery Ltd, which is based in King’s Lynn in Norfolk, runs a series of activities to support those at risk of being excluded from school, and of offending and entering the criminal justice system. It tries to help those not in education, employment or training by providing support, mentoring advice and educational programmes that help people to develop key skills. I understand that it is a registered charity, although time has not allowed me to check whether it is registered for gift aid. However, let us assume that it is, and that it meets the “three years in seven” category. Surely such a charitable industrial and provident society should be allowed to benefit under the Bill, providing that it meets all the Minister’s criteria and is willing to read the 80 pages of guidance that he sets out.
The second example is the Lydney community centre in Gloucestershire, which has taken over a former primary school. I understand that the volunteers who run the centre have set themselves up as an industrial and provident society, and specifically as a community benefit society. Although it is not yet registered as a charity, it could do so. In the longer term, it could benefit under the scheme, if charitable industrial and provident societies are covered. If they are not covered at the moment, that could be achieved by agreeing a suitable amendment on Report. Such organisations are doing the right thing in their communities, so surely they are well worth our support.
I would like to thank Ian Snaithe, a legal expert on industrial and provident society legislation, who drew my attention to this gap in the Bill. I am grateful for his work, expertise and guidance, and I look forward to hearing the Minister’s response.

Sajid Javid: I understand the intention behind amendment 34, but I ask the hon. Member for Harrow West to withdraw it, because it is not necessary. Clause 17 sets out definitions for several of the terms used in the Bill. Subsection (1) defines what is meant by a charity which, for the purposes of the Bill, includes a charity eligible for UK charity tax reliefs, and certain organisations that are not charities in law, but that benefit from gift aid. Those are community amateur sports clubs, as well as certain named organisations.
Amendment 34 would add a further type of organisation to the definition of a charity: industrial and provident societies that operate as charities. Industrial and provident societies are regulated by the Financial Services Authority, rather than the Charity Commission, but some of them are charities, as the hon. Gentleman said. Industrial and provident societies that are charities are entitled to claim UK charity tax reliefs, including gift aid, because they meet the definition of a charity as set out in subsection (1)(a). It follows that there is no need to specify that industrial and provident societies are a separate class of organisation to which the Bill will apply. When an industrial and provident society is not currently a charity, it is not eligible for the scheme. Those societies that are charities automatically qualify for the scheme, subject to their meeting the eligibility conditions.

Gareth Thomas: I am grateful that the Minister has put that clarification on record because it will clear up any doubts. However, who will regulate the charitable status of community benefit industrial and provident societies that are charities? The sector has been concerned about that for a while, so can he offer any further information?

Sajid Javid: The hon. Gentleman is right about putting things on the record, and to the extent that doing so helps industrial and provident societies understand the intentions of the Bill, that is good. The hon. Gentleman gave examples showing that many industrial and provident societies do excellent work and we want to ensure that, where they are charities, they can benefit from the scheme.
Regulation of industrial and provident societies is a matter for the Charity Commission and the Cabinet Office. Where a charity is not required by law to be regulated by a regulator, it can still qualify for UK charity tax reliefs, including the benefits of this scheme.

Gareth Thomas: I understand that responsibility for the Charity Commission is not within the Minister’s immediate scope, and I am grateful for the assurance that he has provided about the eligibility of charitable industrial and provident societies under the scheme. However, I also raised the wider concern about future regulation of the charitable status of industrial and provident societies. I appreciate that he cannot give me a direct answer now, because he does not have direct conversations with the Charity Commission, but will he use his good offices to give it the hurry-up to resolve this small issue, which is nevertheless important for this group of organisations?

Sajid Javid: I am happy to write to the Charity Commission on the hon. Gentleman’s behalf.
I ask the hon. Gentleman to withdraw his amendment.

Gareth Thomas: The Minister has been helpful and given clarity to bencom societies that are charities, saying that they are covered under the Bill if they fulfil all the criteria that we have debated at some length. That will provide huge reassurance to those legal experts who advise industrial and provident societies, such as Mr Snaith, who is a distinguished former university lecturer and expert on the co-op and co-op law.
The Minister has also been helpful in agreeing to give the Charity Commission a gentle prod to resolve the more general issue, specific to these debates, of how charitable industrial and provident societies are regulated in future. I am grateful to him for that and I hope he will be willing to make his letter and the answer to it publicly available, or at least available to Members of the Committee. I will happily take an intervention from the Minister if he is willing to give us that assurance.
 Sajid Javid  indicated assent.

Gareth Thomas: The Minister is nodding; I will take that as a yes. I am grateful for that, and as a result, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Cathy Jamieson: I beg to move amendment 33, in clause17,page9,line23,leave out from ‘2011’ to end of line 26.

Sections 7 and 356 of the Charities Act 2011 already make the necessary provisions stated here. Accordingly, the reference to the law of Scotland (and incidentally to the law of Northern Ireland) in Clause 17 is supererogatory.
This issue was raised on Second Reading and again in the evidence session. The amendment would delete the following from clause 17:
“(reading the reference in section 2(1) to the law of England and Wales as including a reference to the law of Scotland and the law of Northern Ireland)”.
The reason for the amendment, again, is to probe the relationship between the definition in the Bill of charities in English legislation and the recognition that the law in Scotland is somewhat different. We heard this morning, and we heard in discussions on previous clauses, of potential difficulties arising from different interpretations. We need clarity and the Minister has been helpful in trying to get those definitions.
This issue was first flagged up on Second Reading as a result of evidence submitted by the Law Society of Scotland suggesting that, on this occasion—this may be helpful to the Minister—while the intention of the process is to ensure clarity across the UK, the provisions which seek to import the English definition of “charitable purposes” from the Charities Act 2011, as that is the relevant definition for UK tax purposes, may be unnecessary. It has been suggested to us that the reference in clause 17(2)(a)
“to the law of England and Wales”
is unnecessary because section 7 of the 2011 Act, “Application of this Chapter in relation to Scotland” and section 356, on the “Extent” of the Act, already make the necessary provision, specifically limiting it by reference to section A1 of part 2 of schedule 5 to the Scotland Act 1998 to reserve matters of fiscal policy. I see the hon. Member for Congleton nodding sagely—she is, of course, an esteemed Member of the Scottish Affairs Committee and takes a very close interest in devolution issues.
I want some clarity from the Minister so that, in trying to do the right thing, we do not inadvertently cause difficulties. He has been at pains to say on a number of occasions that certain things are not required because other legislation already deals with the matter. Does existing legislation not cover this issue adequately, without the need for something which appears to be importing an English definition of “charitable purposes” into the Scottish definition?

Sajid Javid: Amendment 33 would remove the reference to Scotland and Northern Ireland from the definition of “charitable purpose” in clause 17. The hon. Lady has explained her belief that the text that the amendment would remove is unnecessary, but I regret to say that I cannot agree. The reference to Northern Ireland is necessary, and the reference to Scotland is there for legal certainty. Charity law is a devolved matter, and the definitions of “charitable purpose” in Scotland and Northern Ireland differ from one another and from those used in England and Wales. For UK tax purposes, however, we use the definition under the law of England and Wales, which is in section 2 of the Charities Act 2011, because it is important that national taxes be applied in the same way across the United Kingdom.
Section 7 of the 2011 Act applies the English definition to Scottish charities in relation to matters that fall within section A1 of part 2 of schedule 5 to the Scotland Act 1998: namely, reserved matters of fiscal, economic and monetary policy. The small donations scheme is a reserved matter, so I agree that for Scotland the reference to section 2 of the 2011 Act might have been enough. The clause also refers to the law of England and Wales and the law of Northern Ireland, however, because the devolution settlement in Northern Ireland is different from that in Scotland.
Section 8 of the 2011 Act applies the English definition of “charitable purpose” for enactments that fall within paragraph 9 of schedule 2 to the Northern Ireland Act 1998, which are excepted matters relating to taxes and duties. The small donations scheme is not a tax or a duty, so section 8 of the 2011 Act does not do the same job for Northern Ireland as section 7 does for Scotland.
Without the explicit reference to Northern Ireland in clause 17, the small donations scheme might work differently depending on where the charity is located. Under clause 3, charities can use small donations only for charitable purposes. If the definition of “charitable purpose” were different in Northern Ireland, some charities would be able to spend money on things that other charities would not, depending on where they were located. That would not be right for a UK-wide scheme, so the reference to Northern Ireland in clause 17 is necessary.
The reference to the law of Scotland provides legal certainty. Confusion might result if clause 17 referred only to the laws of England and Wales and the law of Northern Ireland, because that might imply that the definition found in the 2011 Act did not apply for the purposes of Scottish law. Some people might take the lack of a reference to Scotland to mean that the Scottish definition should apply, which would be wrong.
I hope that that has helped to answer some of the good questions that the hon. Lady asked. The Government have drafted the clause correctly, and it is vital to have clarity. Now that I have explained why the reference to Northern Ireland in clause 17 is essential and that the reference to Scotland is there to give legal certainty, I ask the hon. Lady to withdraw amendment 33.

Cathy Jamieson: I appreciate the Minister’s detailed answer to that question and his concession that it might have been possible to word the clause without reference to the law of Scotland. He has, however, made it clear that he believes that the clause needs to refer to the law of Northern Ireland. I certainly have a good working relationship with our colleagues just across the water from my constituency and, bearing in mind the interests of my hon. Friend the Member for Foyle, would not want to do anything whatsoever to cause problems for any charitable organisations there. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 17 ordered to stand part of the Bill.

Clause 18  - Financial provisions

Question proposed, That the clause stand part of the Bill.

Gareth Thomas: I am grateful for the opportunity to catch your eye and ask a couple of questions under this clause about the financial cost of the scheme. I think I saw somewhere the Minister say that in the first year of operation, 2013-14, the scheme will cost some £60 million, which is a rough estimate. That obviously assumes that there will be no problems with the new online computing system, to which the Minister has alluded. He says that he has received assurances that the scheme will be up and running and perfect. It would be helpful to hear from the Minister the specific amounts that he and his advisers in the Treasury have set aside for the first three years of the scheme. Those first three years are 2013-14, 2014-15, which takes us up to the general election, and 2015-16. The coalition will have set the budget for 2015-16, and we will be stuck with it, at least initially, when we come to power. As I understand it, the estimate is some £60 million for 2013-14. I think the Minister or his predecessor hinted somewhere that by 2015-16, when the scheme is fully running, the scheme will be costing the Treasury some £125 million. I may be wrong with those figures, so it would be helpful to get some clarity on the Treasury estimates for the scheme’s costs.

Sajid Javid: Clause 18 is a technical provision known as a “sink clause”. It specifies that the top-up payments under this scheme will be paid out of money provided by Parliament. The scheme is a public spending measure and clause 18 makes that plain, but the scheme would still be a spending measure even without clause 18. There is a specific purpose for including clause 18. By convention, any provision in a Bill that involves public spending must be printed in italics, but nearly all of the Bill’s provisions involve public spending—directly or indirectly—so without clause 18, most of the Bill would need to be printed in italics, and many people would find that hard to read, including, I am sure, the hon. Member for Harrow West. Actually, given his love for Latin and other things, perhaps it would help. The inclusion of a sink clause means that only the provisions that make direct reference to public spending need to be printed in italics, which is therefore necessary only for clause 18 and clause 1(1).
Turning to the hon. Gentleman’s specific question, the Government gave some estimate for the scheme in Budget 2011. I will remind him of the numbers.

Gareth Thomas: Would it be helpful if I intervened?

Sajid Javid: No, it is okay. I can provide the estimates that have been given previously. I put it that way because we have tabled several Government amendments and, given those changes, it is normal for us to ask the independent Office for Budget Responsibility for an assessment of any impact on our original costings. Our current estimate is that for 2013-14—effectively, that will be the first year of operation—the cost will be about £35 million, for 2014-15 the cost will be about £65 million and for 2015-16 the cost will be about £70 million. After the first two or three years of operation, when the system is running at full steam, our original estimate is that the cost will be about £100 million a year.

Gareth Thomas: I am grateful to the Minister for his helpful clarification about the italics in the Bill—at least that should reduce the guidance for charities by about five pages. It is also helpful to have clarity about the figures of £35 million, £65 million and £70 million for the first three years. If I remember rightly, the Treasury is either preparing a comprehensive spending review or will do so soon. What guarantees will he give those in charities who read our debates that those figures will not be affected during the Treasury’s negotiation of the comprehensive spending review?

Sajid Javid: In proposing the initiative and progressing with it, including by tabling amendments after listening to the useful input from charities and others, the Government have been committed to the Bill, as has been clear from our debates. I have given the hon. Gentleman an estimate of the costings. I stress that it is only an estimate, and should be prefaced by what I said earlier. To link this to our discussion on an earlier clause, once the Bill has received Royal Assent, we do not, because of the review that the Government want in three years’ time, anticipate making any significant changes for at least three years, so there should not be any significant changes to the costings.

Gareth Thomas: To be clear, is the Minister saying that the Treasury is not seeking to reduce expenditure under the small charitable donations scheme? It is clearly seeking to reduce a whole series of other parts of Government expenditure, but will this scheme be untouched?

Sajid Javid: I reassure the hon. Gentleman that the Government have no plan to make changes to the scheme.

Gareth Thomas: No plan at the moment.

Sajid Javid: We have no plan to make changes to the scheme.

Mark Durkan: The Minister has helpfully confirmed the Treasury’s rolling estimates of the expenditure drivers in the Bill for the next few years. In relation to issues raised during our evidence sessions, is he in a position to clarify how much of that cost the Treasury believes will come directly as top-up payments and how much will involve increased gift aid, as more charities use it and are encouraged to use it more? Does he have any breakdown of the estimates between gift aid proper and top-up payments?

Sajid Javid: That is a good question. It is clear that when the Government make estimates and have the OBR look at them, we need to take into account behavioural changes. I think that that is what the hon. Gentleman is getting at. Changes to gift aid are likely, perhaps in both those directions. I hope that he respects that that is difficult to estimate, because it is a behavioural change and this is the first time that any Government have done something of this nature. I have no numbers that could give that breakdown, but as we progress past the first year and move into subsequent years that behavioural impact will become better known, and I hope that HMRC will provide further information at that time. We will discuss reporting in a later clause, but HMRC usually releases annual information and key statistics on the changes in claims for gift aid and other charitable reliefs, and I hope that that kind of information can be included.

Jeremy Lefroy: As the Minister will know, a certain proportion of gift aid payments are attributed to overseas development assistance when making the calculations under the OECD rules. Would the same apply for donations made to charities giving overseas development assistance with these gift aid top-up payments as it does for the original gift aid?

Sajid Javid: Perhaps my hon. Friend can clarify his question. It was not quite clear.

Jeremy Lefroy: I am sorry if that was not clear. The Minister will know that a proportion of gift aid—the figure ranges between £60 million and £100 million a year—is attributed to overseas development assistance expenditure under the OECD rules, as part of the total overseas development assistance that the United Kingdom gives. I am asking him whether the same procedure will apply for the gift aid top-up payment as it does to gift aid itself, where any proportion of that gift aid on donations to charities conducting overseas development assistance is included.

Sajid Javid: I thank my hon. Friend for that clarification. If I understood him correctly, he is effectively asking whether charities whose charitable purpose is overseas aid, perhaps for Africa or Asia or for schools or medical aid, are eligible for this scheme in the same way that they are eligible for gift aid. As long as they meet the other criteria within the Bill, those charities are not excluded. For example, if a small local community charity was collecting for an African school, as long as it meets the definition of a charitable purpose under the Charities Act 2011, it would not be excluded from this top-up scheme.

Jeremy Lefroy: I am most grateful for that confirmation, but I want to go a little further. When one thinks about overseas development assistance as a percentage of GDP, under the OECD rules all the bits of overseas development—the hon. Member for Harrow West, who was an overseas development Minister, will know this—that do not necessarily come under the Department for International Development, but perhaps under the Foreign Office or the Ministry of Defence, are assembled, and a part of that attribution is gift aid. I am seeking confirmation that the gift aid top-up will be treated in the same way as gift aid for this OECD calculation. It may not be a very large sum of money, but it is significant and should be counted as part of Britain’s overall overseas development assistance, as gift aid already is.

Sajid Javid: I thank my hon. Friend for making that clear. I understand his question now. It is not something that I have specifically looked at, but it should be treated in the same way as gift aid is for the OECD calculation. I will look into it in a bit more detail. The concern is, if I have understood my hon. Friend rightly, that the total top-up payments in a specific year are treated, as far as OECD calculations for UK overseas development aid are concerned, in the same way as the total amount of gift aid that goes overseas. I believe it is the same way, but I will look at that. That is a good question.

Question put and agreed to.

Clause 18 accordingly ordered to stand part of the Bill.

Clauses 19 to 21 ordered to stand part of the Bill.

New Clause 4  - Charity mergers: new charity taking over activities of one charity

‘(1) This section applies if, on an application made by a charity (“the new charity”), HMRC certify that in their opinion—
(a) the new charity was created with a view to taking over all of the activities of one other charity (the “old charity”),
(b) the new charity has taken over those activities,
(c) the purposes of the new charity are substantially similar to the purposes of the old charity, and
(d) more than half of the managers of the new charity were old charity managers.
(2) For the purposes of determining whether a charity is eligible under section 2 for a relevant tax year—
(a) things done (or treated as having been done) by or in relation to the old charity before the time of the merger (or after that time but in connection with things done before that time) are to be treated as if they had instead been done by or in relation to the new charity;
(b) the new charity is to be treated as if it had been a charity (as defined by section 17(1)) at any time, before the time of the merger, when the old charity was (or is treated as having been) a charity.
(3) “Relevant tax year” means—
(a) if the old charity does not make a successful top-up claim in respect of small donations made in the year of the merger, that year or any later tax year;
(b) otherwise, any tax year after the year of the merger.
(4) In deciding whether to issue a certificate under this section, HMRC must have regard in particular to the extent to which the property of the old charity has been transferred to the new charity.
(5) HMRC must issue such guidance as they consider appropriate about the exercise of their functions under this section.
(6) Regulations under section 11 may in particular make provision—
(a) about the form and contents of applications under this section;
(b) imposing a time limit for the making of an application;
(c) for an application to require the consent of the old charity if it is in existence at the time of the application;
(d) for appeals against a refusal to issue a certificate under this section.
(7) In this section—
“managers” means the persons having the general control and management of the administration of a charity;
“old charity manager” means a person who was a manager of the old charity immediately before the last of the activities of the old charity were transferred to the new charity;
“time of the merger” means the time when the new charity took over the activities of the old charity (or, if that occurred over a period of time, the end of that period);
“year of the merger” means the tax year in which the time of the merger fell.’—(Sajid Javid.)

This New Clause enables a charity created to take over the activities of another charity to benefit from the gift aid compliance history of the other charity in deciding the new charity’s eligibility under Clause 2.

Brought up, read the First and Second time, and added to the Bill.

New Clause 5  - charity mergers: new charity taking over activities of several charities

‘(1) This section applies if, on an application made by a charity (“the new charity”), HMRC certify that in their opinion—
(a) the new charity was created with a view to taking over all of the activities of more than one other charity (the “old charities”),
(b) the new charity has taken over those activities,
(c) the purposes of the new charity are substantially similar to the purposes of the old charities (taken together), and
(d) more than half of the managers of the new charity were old charity managers.
(2) For the purposes of determining whether a charity is eligible under section 2 for a relevant tax year—
(a) things done (or treated as having been done) by or in relation to the relevant old charity before the time of the merger (or after that time but in connection with things done before that time) are to be treated as if they had instead been done by or in relation to the new charity;
(b) the new charity is to be treated as if it had been a charity (as defined by section 17(1)) at any time, before the time of the merger, when the relevant old charity was (or is treated as having been) a charity.
(3) “Relevant tax year” means—
(a) if none of the old charities makes a successful top-up claim in respect of small donations made in the year of the merger, that year or any later tax year;
(b) otherwise, any tax year after the year of the merger.
(4) Which of the old charities is the “relevant old charity” is determined as follows—
(a) if each of the old charities was an eligible charity for the year of the merger, the relevant old charity is whichever of those charities would first cease to be an eligible charity, assuming that none of them were to make a successful gift aid exemption claim in the year of the merger or any later tax year;
(b) if only one of the old charities was not an eligible charity for the year of the merger, the relevant old charity is that charity;
(c) if more than one of the old charities was not an eligible charity for the year of the merger, the relevant old charity is whichever of those charities would last become an eligible charity, assuming that each of them were to make a successful gift aid exemption claim in the year of the merger and every later tax year;
(d) if two or more old charities would otherwise be the relevant old charity under paragraph (a) or (c), the new charity must elect which of those charities is the relevant old charity.
(5) In deciding whether to issue a certificate under this section, HMRC must have regard in particular to the extent to which the property of the old charities has been transferred to the new charity.
(6) HMRC must issue such guidance as they consider appropriate about the exercise of their functions under this section.
(7) Regulations under section 11 may in particular make provision—
(a) about the form and contents of applications under this section;
(b) imposing a time limit for the making of an application;
(c) for an application to require the consent of each old charity that is in existence at the time of the application;
(d) about elections under subsection (4)(d);
(e) for appeals against a refusal to issue a certificate under this section.
(8) In this section—
“managers” means the persons having the general control and management of the administration of a charity;
“old charity manager” means a person who was a manager of an old charity immediately before the last of the activities of the old charity were transferred to the new charity;
“time of the merger” means the time when the new charity took over the activities of the old charities (or, if that occurred over a period of time, the end of that period);
“year of the merger” means the tax year in which the time of the merger fell.’.—(Sajid Javid.)

This amendment enables a charity created to take over the activities of two or more other charities to benefit from the gift aid compliance history of one of those charities in deciding the new charity’s eligibility under Clause 2.

Brought up, read the First and Second time, and added to the Bill.

New Clause 1  - Annual report

‘(1) The Treasury must, within 12 months of this Act coming into force and annually thereafter, prepare a report on the operation of the Small Charitable Donations scheme and lay it before the House of Commons.
(2) Each such report must provide details of—
(a) the number of charities benefiting from the scheme;
(b) total expenditure on the scheme;
(c) the level of fraud in the scheme.’.—(Gareth Thomas.)

Brought up, and read the First time.

Gareth Thomas: I beg to move, That the clause be read a Second time.

John Robertson: With this it will be convenient to consider new clause 2—P ost-legislative review—
‘The Government shall, within two years of this Act coming into force, undertake a review of its operation and lay a report of the review before the House of Commons.’.—(Gareth Thomas.)

Gareth Thomas: New clause 1 seeks to add a requirement that the Treasury, within 12 months of the Act’s coming into force, publish a report to enable the House of Commons in particular to consider carefully how the Act is working and to provide an opportunity for us to make the case for further reform.
There has been much debate during the two weeks we have considered the Bill about the number of charities that will benefit from the scheme. It would be useful to see a report within 12 months to see how many charities are in practice benefiting. It was useful to have the Minister’s clarity about the Treasury estimates of expenditure under the scheme in each of the next three years.

Sajid Javid: This might be a good point at which to clarify the following. The hon. Gentleman asked me earlier for estimates; the issue also links to what the hon. Member for Foyle asked about behavioural changes. I have some further information that gives some flavour of the behavioural changes. It would perhaps be best for me to say the numbers for each year that can then be matched against the static numbers that I gave earlier. This is an estimate of potential behavioural changes.
In the first year, 2013-14, the total cost is estimated at £50 million; in the second year, 2014-15, it is estimated at £85 million; and in the third year, 2015-16, it is estimated at £105 million. The difference between the two sets of figures—the ones I gave earlier when we discussed clause 18 and now—is static versus behavioural. I hope that I have been helpful. I want the Committee to have the maximum information.

Gareth Thomas: We are grateful to the Minister for his intervention. Nevertheless, a year after the Bill has been enacted, it would be helpful to know more specifically how much had been actually spent in the £35 million to £50 million range. It would give us a flavour of where, in the likely range between £65 million and £85 million in 2014-15, the ball will stop.

Fiona O'Donnell: Does my hon. Friend think that it would also be useful to have the figures, as my hon. Friend the Member for Foyle mentioned, in respect of the increase in charities claiming gift aid? I am sure that that would incentivise many charities, especially smaller charities, to take up the scheme so that, in three years’ time, they will also benefit from measures under the Bill.

Gareth Thomas: My hon. Friend has made a good point, as indeed did my hon. Friend the Member for Foyle. If the Minister is right, there will be a huge surge in the number of charities registering for gift aid in order to benefit three years down the line from the small donations scheme. It would be helpful to get some sense of whether the behavioural change predicted by the hon. Gentleman in that sense was coming to fruition. My hon. Friend the Member for East Lothian was absolutely right that one of the ways in which we could know whether that was happening would be to have the total expenditure on the scheme broken down in terms of the extra gift aid claims as well as the money spent under the small donations scheme.
Many attempts have been made by the Minister to justify the scheme’s level of complexity on the basis of the level of fraud. I repeat that Opposition Members are absolutely committed to taking proportionate measures to stop fraud under the scheme. It would clearly be helpful to hear, 12 months down the line after the scheme was in operation, HMRC say how much fraud it actually estimates in its operation. That would allow us to have a meaningful debate about the success or otherwise of the scheme.

Fiona O'Donnell: Does my hon. Friend consider that it would be useful if HMRC said how much it has had to take back from charities? We would then know whether charities were struggling to operate the scheme within the rules. The arrangements could really affect charities’ cash flow projections and the management of their budgets in difficult times.

Gareth Thomas: My hon. Friend is right. Perhaps I should have been slightly more clear in the drafting of new clause 1(2)(b) and referred to the total “net” expenditure on the scheme. That would have allowed the Minister even less wriggle room and made him be more clear about the level of overpayments. It would indeed give us a greater sense of the problems for HMRC in managing the scheme and, in turn, a sense of whether charities were benefiting from it.
Linked to new clause 1 is the suggestion that there needs always to be a review of the Bill’s operations after two years in practice, and I shall outline some reasons why. There is considerable scepticism about how the Bill has been drafted and, indeed, the method chosen by the Minister to provide what is an estimated £105 million grant scheme for small charities in the year when the next Labour Government come into power.
In the early parts of the line-by-line debates on the Bill, we had plenty of opportunity to look at the Government’s many other grant-giving schemes—many with equally low levels of fraud, sometimes even lower levels of fraud. New clause 2 would provide an opportunity for Government to consider whether the Bill, with all its complexity, and the scheme, with all its complexity written into its heart, are still the best way to administer this small grants scheme.
New clauses 1 and 2 are perhaps an opportunity to reflect on our two weeks of line-by-line scrutiny to see essentially what we have learned about the scheme and the Government’s motives and intentions. We set out at the beginning of this two-week process wanting to help the Government get the money to small charities. However, we were extremely concerned about the level of complexity in the Bill.
We raised a series of concerns reflected to the Committee by those who represent the charity sector about the requirement that access to this scheme be linked to gift aid registration; then the requirement that there could not be a benefit unless there were three years of gift aid claims. There were concerns about the wholly new concept of community buildings written into the scheme—a concept completely alien at the moment to most charities. It is not necessary to understand that concept at the moment. We have gone on to listening to the concerns of charities, to raise concerns about issues relating to charity mergers and the sheer amount of guidance set to be required.
We were also extremely worried about the potentially small number of charities, proportionately, that would benefit under the terms of the Bill. In its evidence to the Committee, the National Council for Voluntary Organisations suggested that only a third of charities across the country would benefit from the Bill. We were seeking to understand from Ministers why they wanted to exclude the other two thirds of charities from access to the scheme, given how much other moneys have been cut in Government spending from which charities might otherwise have sought to benefit.
The third area of concern we sought to raise was the divisive nature of the scheme. Members of the Committee will remember me posing, in terms that I hoped Government Members would clearly understand, the contrast between Eton, a charity registered for gift aid with considerable capacity to help those donating register for gift aid, and the charity linked to the best primary school in the country—the Friends of Newton Farm, based in my constituency. That is not registered for gift aid and therefore not able to claim under this scheme. Why do the Government think it fair that Eton should be able to benefit from the scheme while the best primary school in the country, that happens to be in my constituency, is not?
We heard two other examples of division under the scheme. We heard that English Heritage will potentially benefit from it; we heard that the National Trust will largely not potentially benefit from it. We heard that well established churches in the Church of England will benefit but churches that have been planted in communities—just getting up and running—are not likely to benefit. We were concerned about why the Government wanted to allow a scheme that pitted one small charity against another—that allowed one small charity to benefit from the scheme but not other small charities.
I cannot speak for every Opposition Member, but my instinct is that our concerns have deepened in those three areas.
We now know that the scheme will be far more complex than we even imagined at the beginning of these debates. Potentially 160 pages of guidance on the website—80 pages just to register for gift aid, as we heard as the result of an intervention from my hon. Friend the Member for Leeds East.
The Minister confessed in an interesting aside this morning that he expected the guidance under the scheme to be at least as long as that for registering for gift aid. If in January he is successful at his meeting for Bromsgrove charities in persuading the 2nd Bromsgrove Scout Association, if it is not already registered, to register for gift aid—the hon. Member for Birmingham, Yardley is not here, but perhaps the 1st and the 3rd Bromsgrove Scout Associations are not registered for gift aid either—it will have to wait three or possibly four years to get its gift aid claims in and to benefit, as a result, from a maximum of £1,250.
I suspect that the Minister will not say at the January meeting to the 1st, 2nd and 3rd Bromsgrove Scouts that they will need to wade through 160 pages of guidance on the website. He probably will say, “Speak to this excellent HMRC official that I have brought along today and he will help you to claim, fill in your forms for gift aid and get registered for this scheme”.
We have also learned during the passage of the Bill that the estimate that a third of charities would benefit from the Bill and that two-thirds would not benefit is not as accurate as we expected. A letter sent, I think, to all members of the Committee by the National Council for Voluntary Organisations, which I hope to come to later, appears to suggest that only a fifth of charities will be eligible. So the scheme is even more divisive than we had been led to believe. Four out of five small charities will not be able to benefit under the terms of the Bill. Only one in five charities will be able to benefit. As we have come to understand, it is even more divisive than we expected. We know about Eton versus the Friends of Newton Farm—

Greg Hands: You’re obsessed!

Gareth Thomas: The hon. Member for Chelsea and Fulham says that I am obsessed, but I pose it in terms of Eton to help Government Members to understand just how divisive the scheme is. Its pits the favourite charity of many Government Members against other charities. We are not trying to prevent Eton from benefiting from the scheme; we just want to make sure that other charities have the same opportunity to benefit.
What the hon. Member for Chelsea and Fulham has against the idea of the Fulham and Chelsea parent-teacher association, the First Chelsea Scout Troop, if it is not registered for gift aid or, indeed, the Chelsea and Westminster hospital radio station, benefiting from the scheme, I do not know. What we do know from the evidence presented to us is that the favourite charity of some Government Members will potentially benefit under the scheme, but many parent-teacher associations, many hospital radio stations and many scout groups will not benefit.

Mary Macleod: May I request that the hon. Gentleman uses another example of a school? Most Government Members do not particularly relate to Eton, because we did not go there. I went to a local comprehensive in the north of Scotland. He should feel free to cite Chiswick community school, which might be a better example.

Gareth Thomas: I am delighted to use Chiswick community school or perhaps an Isleworth community primary school, if there is one. Has the hon. Lady had the chance to check whether such a school has a parent teacher association, and whether it is registered for gift aid and has had three years of gift aid claims? She does not seem quite so sure about that, but that Isleworth community primary school risks not benefiting from the Bill. I suspect that she is a deeply influential Government Member, and I simply used the example of Eton versus the Friends of Newton Farm—I will now cite the example of that Isleworth community primary school—to encourage her to use her influence with the Minister to persuade him to reflect on the divisiveness of the scheme as it now stands and to introduce further amendments on Report.
We do not seek to hold against the Minister his descriptions of the merits of the clauses. Out of generosity, we understand that he has been in the Treasury only two minutes and that that is hardly time for him to demand and secure the rewrite that we gently suggest is merited for some parts of the scheme. On Report, he will have been in the Treasury a little longer.

John Robertson: Order. May we come back to the clause?

Gareth Thomas: You are right, Mr Robertson.
We look forward to the Minister’s being enthusiastic about using the opportunities given by new clauses 1 and 2 to persuade his officials to rewrite some of the Bill. Our concerns have grown and, as Opposition Members, we have seen one of our central tasks in Committee as highlighting, for the Minister’s benefit, the Bill’s complexity. New clauses 1 and 2 were tabled to give him the opportunity to reflect on what he has said.

Sheila Gilmore: I said earlier in our debates that I hoped that some of our points about the complexity and the obstacles—the obstacle race, indeed—that smaller organisations will have to jump over and which might lead to people not taking up the opportunity to benefit from the scheme, would be looked at. As that has not happened, does my hon. Friend agree that it is important to have regular reports back to see whether our concerns are justified, so that changes might be considered?

Gareth Thomas: My hon. Friend makes a good point. The purpose of an annual report or a review is to provide a trigger point for the House and the Treasury to recognise the difficulties inherent in the Bill, to begin further conversations about how to address concerns and to take appropriate action.
In support of new clauses 1 and 2, it is worth reflecting on what the Minister has said in recent sittings. On 23 October, in the sixth sitting, he said:
“The hon. Gentleman is right that the rules are complex”.
Later, he said:
“I readily admit that this part of the Bill is complex and that we do not know exactly how it will work until it comes into practice.”––[Official Report, Small Charitable Donations Public Bill Committee, 23 October 2012; c. 206-207.]
On 25 October, in the seventh sitting, he said that
“the very nature of trying to capture issues such as connectivity—whether it is here where we are dealing with charity, or in other laws where we are dealing with trusts—is complex.”––[Official Report, Small Charitable Donations Public Bill Committee, 25 October 2012; c. 225.]
I give those three examples to suggest that the Minister already recognises the complexity that he has had to defend.

Sitting suspended for a Division in the House.

On resuming—

Gareth Thomas: I have already picked out three of the Minister’s most compelling clips, but there are two others. The three previous ones highlighted the Minister’s confession that the rules of this scheme were complex—that we would not know exactly how they will work until they are practised. In the fourth clip from the Minister’s speeches that is worth reflecting on in the context of the debate on new clause 1, he admitted that mistakes can be made. He said:
“Clearly HMRC is like any organisation; mistakes can always be found.”––[Official Report, Small Charitable Donations Public Bill Committee, 25 October 2012; c. 223.]
In the Minister’s fifth set of comments worth recording in Hansardfor the purposes of the debate on new clauses 1 and 2, he talks about a complicated clause being made even more complex. It was in the eighth sitting on 25 October at column 271. That, I suspect, was in the context of an amendment about which we were probing him. The fact that he admitted that the clause as initially drafted was complicated was revealing. We have four examples of the Minister admitting in Committee that the rules of the scheme are complex, and a fifth one of the Minister admitting that HMRC, like any organisation, can make mistakes. Those suggest that we need to ensure that we write into the Bill an opportunity for a series of triggers to examine how the scheme is working in practice.
We have not been blessed today with the presence of the hon. Member for Banbury (Sir Tony Baldry). When he was probing the Minister in the evidence session on 16 October, he asked Questions 98 and 99 at column 61 —questions that indicated that he, the much-respected elder statesman of the Committee, was not sure how the Bill would work in practice. So we have the Minister admitting that the Bill is complex and one of the most senior Members of the Committee clearly not understanding exactly how particular parts of the Bill would work. That suggests that we need to ensure that we have the opportunity to examine how the Bill would work.
I drew attention in the earlier part of my remarks on new clauses 1 and 2 to a further letter we received from the National Council for Voluntary Organisations exploring the issue of the number of charities that will benefit and will not benefit under the Bill as drafted. The letter from NCVO echoes some of the concerns that were forwarded to us from the Institute of Fundraising. It points out that at the moment there is limited information in the public domain to enable proper scrutiny of the scheme as it stands. It argues that that is because:
“HMRC does not release its data in a way that enables direct comparison with the Charity Commission’s data.”
That is a familiar worry in the charity sector.
The Minister would get at least one good mark if he were to endeavour to resolve the lack of comparability between HMRC data and Charity Commission data. NCVO said that published data from HMRC show that about 65,000 organisations made gift aid claims in 2011-12, which is, broadly speaking, a similar number of claims since as far back as 2006. In his evidence to the Committee on 16 October, the Minister said that there are about 100,000 organisations on the books with HMRC, presumably registered for gift aid but not necessarily claiming it consistently.
NCVO went on to say that HMRC has not received information that would enable further comparisons to be made of the different types of organisations claiming gift aid. Therefore, a range of organisations is not covered by Charity Commission data. For example, the Church of England’s evidence to the Committee referred to the possibility of about 12,500 Church of England parishes using gift aid, which suggests that the number of general charities consistently accessing gift aid is considerably lower than the 65,000 to which the Minister alluded.
Initially, NCVO suggested that about a third of charities could benefit from the scheme. Taking into account the new evidence about the number of organisations that claim gift aid, but which do not have to be registered with the Charity Commission, it argued that it is now more appropriate to use the National Audit Office’s estimate for the size of the voluntary sector—the one that Lord Hodgson used—and suggested that there are about 350,000 charities in the voluntary sector. So taking the 65,000 charities that claim gift aid regularly and setting that against the 350,000 charities that we know exist, only one in five charities is potentially able to benefit from the scheme. One of them is Eton, a provocative example to capture the attention of hard-hearted Government Members, such as the hon. Member for Chelsea and Fulham, and to highlight the unfairness of only one in five charities being able to claim under the scheme, and four out of five charities, including Isleworth community primary school parent teacher association and Stafford hospital radio station, not able to benefit.

Jeremy Lefroy: It is simply not the case that such charities could not claim. If the Stafford hospital radio station were registered as a charity, it would be able to register for gift aid and, after time, to claim it. It is not the case that it would not be able to benefit from the Bill. It might not be able to benefit as soon as the Bill becomes law but, within a certain period, it will be able to do so. Does the hon. Gentleman not agree?

Gareth Thomas: It is good to see Government Members waking up. I draw the attention of the hon. Member for Stafford to the evidence that we heard from Cath Lee, the chief executive of the Small Charities Coalition. As for the type of charities that are not likely to benefit from the scheme, she said at column 17 of her evidence on 16 October that the
“first is start-up charities, because it will be a huge challenge for them to develop and keep going to the stage when they can meet the three-year eligibility criterion. The second group is those charities that do not already use the gift aid system and whose main sources of income are not easily gift aidable or are not gift aidable at all… The third group is those charities that just lack the capacity to engage with the gift aid system as it is.”––[Official Report, Small Charitable Donations Public Bill Committee, 16 October 2012; c. 17, Q31.]
That is perhaps because of the pressure on the managers and trustees of the scheme.
I gently suggest to the hon. Gentleman that the theory may be that in the great scheme of things every charity could benefit, if they all had the same level of capacity as Eton, but Ministers should be dealing with the real world outside the House and demonstrate that they are more in touch with the situation that charities face. They should recognise the reality that four out of five charities are not likely to benefit under the Bill as it stands.

Jeremy Lefroy: Does the hon. Gentleman not agree that the process for registering a charity, which is after all a given, is just as complex, if not more so, than the process for registering for gift aid? He underplays the skills and ability that many of these small charities have demonstrated in registering as charities with the Charity Commission. The engagement with HMRC over gift aid is therefore not a great step. I acknowledge that they will spend two or three years waiting if they are start-up charities, but after that they will be able to benefit from the scheme in a substantial way, because £1,000-plus a year is not an insubstantial amount of money.

Gareth Thomas: I agree that £1,000 is not an insubstantial sum of money. For a small charity it could go a long way indeed. Rather than have a sterile debate in which I cannot persuade the hon. Gentleman to recognise the reality outside these walls and the number of charities that do not benefit, why does he not support our amendment and let us see the evidence in a year’s time? His encouraging intervention in the debate on clause 1 hinted that he would be sympathetic to the idea of an annual report and prompted a number of similarly supportive comments at different moments thereafter by other Government Members. If he is convinced that what the Minister has said will bear out in practice, why does he not support our amendment and let us see what happens?

John Robertson: Order. Before we go any further, may I point out that we are discussing an annual report and a post-legislative report. We are not here to debate the whole Bill from start to finish again. I have been very lenient, but can we draw back in please?

Fiona O'Donnell: Speaking very specifically to the matters that you, Mr Robertson, brought our attention to, my hon. Friend is right to highlight that there is a risk that the Government are out of touch here. With three food banks opening every week across the UK, £1,250 would feed many families and is not an insignificant amount.

Gareth Thomas: My hon. Friend is right. Those charity food banks that are opening as we speak are not likely to benefit under the terms of the Bill until well into the period of the next Labour Government. Clearly it is a concern that many of those charity food banks will not benefit in the next two years.

Jeremy Lefroy: The hon. Gentleman is being generous. I will take heed, Mr Robertson, and stick to the point about the report. My point in my intervention earlier in the Bill was that it will be quite possible—all hon. Members should make a diary note—in April 2014 to require through a parliamentary question or an Adjournment debate a report on the Bill’s impact. It is not necessary to have it in the Bill.

Gareth Thomas: That is true, but equally would it not be better to have it in the Bill, rather than have to make the necessary diary note in the first place? Where there is controversy—as there clearly is on whether the eligibility criteria written into the scheme will benefit as many charities as the Minister says they will—surely it is sensible to have in place the mechanism for an annual report, and for a sensibly timed review of the Bill. We think that two years for a proper review is sensible, and that to help set the agenda for such a review we should have an annual report looking at the implementation of the Act after 12 months.
I encourage the hon. Gentleman to show the same flexibility of spirit that he hinted at in his speech on clause 1 and support us on new clause 1. I think he wants to. The hon. Member for Chelsea and Fulham is out of the Committee Room at the moment. Let us hope he stays out of the room. Perhaps the hon. Member for Stafford will feel less intimidated and want to be with us on the right side of the argument.
The NCVO, in its letter to us, went on to suggest that the Minister had perhaps inadvertently given the impression that a lot more charities would benefit under the terms of the Bill than will actually do so. I gently suggest to members of the Committee that the idea that four out of five charities will not benefit from a scheme that is potentially worth £105 million in the third year of its operation, when roughly £3.3 billion is set to be lost to the charity sector from Government financial support by 2015, ought to be seriously alarming for all of us, because that could mean that relatively huge numbers of small charities in all of our constituencies will not benefit in the way that they could have done.
It would be good if the Minister, before Report, committed to providing answers to a series of questions relating to new clauses 1 and 2. Let me set out what those questions are, because they will help to inform the run-up to publication of an annual report and to influence the context in the run-up to a formal review after two years. Specifically, how many organisations claim gift aid that are not covered by Charity Commission data? It would be helpful for HMRC, through the Minister, to release that figure. How many general charities are claiming gift aid? How many organisations have made claims for gift aid in three of the past seven years? How many of the 65,000 organisations that the Ministers hinted he thinks will claim in the first year under the scheme would be eligible if the track record was reduced to one or two years of successful gift aid claims, instead of three?
The Minister also hinted at flexibility on the matching rule. That was good to hear, but it would useful to know. The NCVO hinted that it thinks there are approximately 25,000 charities putting in gift aid claims in the range of £0 to £1,000. It is difficult to break that down further to see how many charities have claimed less than £625 per year. It would be helpful if the Minister was willing to ask HMRC to give us a bit more information, so we can break that down further and have a more meaningful debate on Report and, crucially, in the run-up the publication of the annual report and the review clause.
In the evidence session, we heard the NCVO's serious concern that a series of small charities might miss out because the harsh eligibility criteria, which the Minister insists on defending, have the potential to put them off. We heard about the Telford and Wrekin Senior Citizens’ Forum, the Wiltshire Rural Music School, Cumbria Action for Sustainability and Southside Young Leaders’ Academy. A review clause would give the Minister and HMRC time to reflect on whether more could be done to help such crucial organisations. I am sure that we can all think of similar organisations that do huge amounts of good in our constituencies, which would benefit from the £1,250 in full, but which are likely to miss out.
I suspect that the hon. Member for Brentford and Isleworth is secretly sympathetic to the concerns we have raised about the Bill. It was not clear from her facial expressions, I think it is fair to say, whether the Isleworth community school parent teacher association has registered for three years of successful gift aid claims. I am sure that she, with the background of the type of school that she says she went to, would not want that very worthy charity in her constituency to miss out. She will recognise the unfairness of Eton benefiting from this scheme and the Isleworth community school PTA not benefiting—it seems a huge unfairness.
I do not know whether the hon. Member for Stafford knows of the Telford and Wrekin Senior Citizens’ Forum, but I am sure that he will recognise a similar Stafford senior citizens’ forum and it seems a huge shame that such an organisation, perhaps registered for gift aid, but not for three years, should have to wait until he loses the election and a Labour Government reforms this system for it to benefit under the terms of the Bill.
The hon. Member for Congleton may not know of the Wiltshire Rural Music School, but perhaps there is a Congleton or a Macclesfield music school, perhaps it is a charity registered for gift aid but does not have three years of claims. An annual report and a review mechanism would allow her time to reflect on our exchanges today, perhaps allow her time to use her influence on the Minister, perhaps allow her time to do what the Minister says he is going to do and get HMRC to a charity day in her constituency and try to help charities benefit, not only from gift aid but from the small donations scheme.
Again, why should such a Congleton or a Macclesfield music school have to wait for the election of a Labour Government to get a review clause? Why does the hon. Lady not back our amendment and get an annual report locked into the framework of the Bill to serve as a useful trigger for an opportunity for her to use the considerable influence we saw in the debate about the matching rule to persuade the Minister to reflect on further changes to the eligibility criteria? I urge Government Members to recognise the merit of an annual report and to look at the detail of implementation of a formal review clause.
We hope that the Minister will be particularly persuasive on new clause 1 and new clause 2. We would not want to have to divide the Committee when there has been so much consensus, when we have been able to persuade Government Back Benchers to be so sympathetic to our concerns. I hope that the Minister is ready for the challenge of responding persuasively and articulately to convince us that he is willing to consider further changes to the eligibility criteria implicit in the Bill, such that an annual report and a review mechanism are not required.

Jeremy Lefroy: I am interested to listen to the hon. Gentleman’s comments. When the previous Labour Government made changes to gift aid, did the legislation require an annual report on those changes?

Gareth Thomas: To be honest, I have absolutely no idea. We are not debating the previous Government’s gift aid reforms; we are here to recognise that this scheme is vastly more complex. Gift aid has been a huge success, in no small part thanks to the many reforms made by my right hon. Friend the former Prime Minister to the terms of the legislation. Indeed, such was my right hon. Friend’s commitment to the charity sector that the House had a series of opportunities to debate whether the gift aid system worked and whether charities had sufficient other sources of funding.
Given that so much funding has been cut from the charity sector, it is particularly important that we are confident that this scheme will work in the interests of all charities, as opposed to just 20% of them, as the NCVO says it will. It is even more important that we have an annual report and the opportunity for a review clause. The hon. Member for Stafford was sympathetic to the idea of an annual report; I am not clear why he has changed his position, or whether it has anything to do with the presence in the room of the hon. Member for Chelsea and Fulham. Perhaps he will say in his intervention.

Jeremy Lefroy: It has absolutely nothing to do with that; it simply has to do with my desire to keep legislation as short as possible and use other means for bringing out such information. However, I ask the hon. Gentleman this. Given that the very good gift aid reforms made under the Labour Government—the original gift aid, as was rightly said, having been introduced under a Conservative Government—were and are so successful, why is it a problem that so many charities are not registered for gift aid? That is the point I want to get at.
Can I persuade the hon. Gentleman to look at it for once as a glass half full rather than half empty? There is an opportunity for small charities that have not been able to register under the provisions—

John Robertson: Order. That has absolutely nothing to do with an annual report. Can we move on, please?

Gareth Thomas: Mr Robertson, I am grateful for your intervention. I am simply trying to encourage the Minister to recognise that Labour Members want to lift up opportunities for every charity to benefit from this comparatively small sum of money. We recognise that the eligibility criteria are not fair as they stand, and we have clearly not persuaded him to show enough flexibility at this stage. We hope that he will use the period between now and Report to show more flexibility, but we think that we should build into the Bill the triggers for an annual report and a review mechanism in order to ensure ongoing debate about the fairness or otherwise of the eligibility criteria that he has insisted on defending so hard for so much of the past two weeks. With that, I commend the new clauses to the Committee.

Mark Durkan: I rise to support both the new clauses. I do not wish to rehearse many of the wide issues relating to the Bill that have been aired articulately by the hon. Member for Harrow West, but I wish to pick up on one point. Why should this Bill carry a clause for report and a clause for review? By clause 15, the operation of the Bill will become an excepted matter under the Northern Ireland Act 1998. As we know, the Bill requires legislative consent from the Northern Ireland Assembly, which has remitted primary consideration of that to its Committee for Social Development. That Committee has expressed an interest in the benefits that the Bill may extend to many charities, but has also voiced concerns about the eligibility criteria that it thinks need to be widened, the donations limits and the impact that the bureaucracy will have on charities in Northern Ireland.
One benefit of having a clause for report and a clause for review in such a Bill is that that would assure a Chamber that has to give legislative consent but has concerns that it will receive formal reports at clear dates. Such reports are tabled in the House of Commons, so they would also be available to the devolved Chamber and the devolved Administration. These issues will affect charities in Northern Ireland—and, no doubt, in Scotland—where charities have a different regulatory status, so when its legislation affects so many of the interests and activities falling into devolved areas, it would be good practice and good manners for this Parliament to receive formal reports.
With all due respect to the hon. Member for Stafford, it is not enough to rely on informal undertakings about some of us tabling parliamentary questions, to which answers with the amount of available detail may or may not be given. Of course, it would be helpful, when the sort of report posited under new clause 1 is received, if HMRC not only gave the aggregate figures for charities benefiting from the scheme, total expenditure and the level of fraud, but gave relevant territorial indicators, so that the devolved areas—perhaps including Wales—could see how they are affected. I know that not all charities operate on a definable or trackable territorial basis in relation to the different jurisdictions within the UK, but I am sure that HMRC can provide such information in a way that is articulate enough to allow people to see what is happening in respect of the overall intent of Parliament and in their own areas.
We have to be transparent and accountable, and to take responsibility as a Parliament for the legislation that we pass. Too often, it is very easy for us to pass legislation without taking responsibility as legislators. In Committee Rooms and the Chamber, we always hear the Government being cited—the last one as being responsible for all the legislation passed in previous Parliament, and this one as being responsible for all the legislation passed in this Parliament—but we, as legislators, have to take some responsibility. When, having put forward my name, I become a member of a Public Bill Committee, I actually feel some responsibility for the quality of the resulting legislation.
One good discipline for such a Bill is that several Members on both sides of the Committee recognise the worth of the positive measures, but wonder about the workings and workability of some of the detail and about whether it could not be made more accessible to others. If that is our shared spirit as legislators, we should give Ministers, HMRC and others the opportunity to modify and improve the implementation of the Bill—perhaps even to review its detail—by providing for such clauses. Given the range of responsible and measured concerns that we have received, neither new clause 1 nor new clause 2 would be a particularly radical or heady change to make.
To that extent, I commend both new clauses to the Minister for his consideration, although he will not be in a position to support them today. However, as the Bill goes forward, a report and a review clause would give extra assurance to those in the Assembly as well as to many charities that the intention is to review the Bill and its workings in their interest. The hon. Gentleman has oft promised us reviews after three years. Given that that has been his refrain during our debate, I do not understand why it would be so objectionable for him accept the new clause.

Sajid Javid: I take this opportunity of discussing the new clauses tabled by the Opposition and to thank them for their contribution to the debate. On Second Reading, they said that they would be supporting the Bill in principle, but would be providing constructive scrutiny. Those on the Opposition Front Bench have done that admirably throughout our proceedings, as have other members of the Committee, and have done a good job in bringing up issues and asking questions, which I shall try to answer.
I will be upfront with the hon. Member for Eton, West—sorry, Mr Robertson, I mean Harrow, West. I do not know why I said “Eton”. For some unexplained reason, it has been mentioned so often in Committee. Such places have two great public schools, one of which I am sure that the hon. Gentleman represents well.
I shall not be supporting the new clause. Before I set out my reason why, I wish to tackle the charge made indirectly by the hon. Gentleman that I have dismissed every proposal out of hand. I reassure Opposition Members that I have considered with care each amendment and new clause they have tabled. They will remember my saying that I will consider again the level at which the matching rate is set, following their amendment to clause 1. Will they also note the range of amendments that I have introduced to the Committee, many of which were in specific response to the arguments advanced by hon. Members on both sides of the House on Second Reading? For example, several hon. Members drew attention to their anxiety about the single shared trustee connecting two otherwise unrelated charities. I tabled an amendment on that matter. Mention has also been made of the difficulty that excluding commercial buildings from the community building rules would create for some charities, so we have made changes to reflect that view.
The hon. Member for Kilmarnock and Loudoun asked whether charities that merge can continue to be eligible for the scheme. We had a good debate about that earlier, as the Government had tabled an amendment to deal with that issue. The hon. Member for Foyle drew attention to his worry about charities that had received penalties, but had them suspended or repealed. We also tabled an amendment to take account of that. The Government cannot be accused of not listening to Opposition Members and charity representatives on the Bill.
I am opposing both new clauses not because I do not want such information to be in the public domain, but because we are already doing much of what they ask and it would not be a good use of civil servants’ time to duplicate such work. Let me start with the annual report. HMRC publishes national statistics on the cost of the various charitable tax reliefs three times a year. When the scheme is up and running, HMRC will include the cost of the gift aid small donations scheme in those regular publications, following the practice established for transitional relief. Those figures will be national statistics. I have said before that HMRC does not publish the details of fraud rates in particular schemes or tax reliefs. That would be tantamount to advertising them to fraudsters, so I cannot give a commitment to publish such information. It is not necessary to provide an annual report to Parliament. All the information that the hon. Member for Harrow West has asked for and that HMRC can reasonably publish will be published. Interested members of the Committee will be able to find all the relevant information on the HMRC website.
I move on to the review of the scheme, which the hon. Gentleman says should take place two years after the legislation comes into force. I have said a number of times during our debates on the Bill that we are committed to undertaking a review of the scheme three years after it has started. Three years will be enough time for the scheme to get up and running, and for charities to learn about it and get used to claiming under it. Any less time than that would mean that we would be undertaking a review that would not be representative of the scheme, as the scheme would just be starting up. A two-year review would be premature.
However, I do not want hon. Members to think that the scheme is going to start on 6 April next year and that no one will look at it for three years until the review happens. HMRC continually engages with charities; staff on the helpline will be speaking to charities probably every day about their experience of the scheme; and outreach and audit teams will be visiting charities, and hearing what they are saying about the scheme. In addition, HMRC has a charity tax forum that brings together a wide range of charity representatives every quarter to discuss all matters relating to HMRC’s interaction with charities. The forum has been discussing the scheme since it was first announced in March 2011, and it has a working group to discuss the scheme in a more detailed way. The forum will share experiences of the scheme as it beds down and it will identify areas for improvement.

Gareth Thomas: Perhaps this would be a useful moment for the Minister to reflect on the five questions that were triggered for me by the NCVO's letter, which raised concerns about the comparability of the Charity Commission’s data and HMRC’s data. If he was able to get HMRC to try to provide answers to those five questions, I suspect that would be useful for the charity tax forum in its meetings with HMRC officials, so that it could probe the organisation and effectiveness of the scheme.

Sajid Javid: Yes, this is a good point for me to turn to some of the points that were made by the hon. Gentleman, including that particular point. He referred a number of times to the NCVO letter. If I remember correctly, he said that it claims that only one in five charities will be eligible for this scheme. I must say that that is not a figure that I recognise.
I will repeat some numbers that I have mentioned before during our debates. About 65,000 charities claimed gift aid last year, but not all charities claim gift aid every year. There are around 100,000 charities that are currently recognised by HMRC for tax purposes. The fact that that number is lower than the overall number of charities is not because gift aid is inaccessible to some charities. Many charities are reliant on income from other sources, such as private trusts or foundations, grants from charitable bodies or other statutory bodies, or public sector contracts. If a charity does not receive donations that are eligible for gift aid, clearly gift aid is not something that it will register for. Perhaps that helps to explain why not all charities are expected to benefit from this scheme or indeed from the gift aid scheme, but I repeat that the one in five number is something that I am sceptical about; I do not recognise it at all.
Related to that, the hon. Gentleman also raised the issue of complexity. As I have readily admitted in the past, the Bill is complicated in parts. However, it is worth pointing out that the complicated parts, for example those relating to community buildings and connected charities, will not be relevant to most charities, because in most cases charities will not use community buildings—we have discussed the reasons why that is the case—and will not be connected with other charities or going through mergers. So, hopefully the vast majority of charities need not be too bothered about the more complicated elements of the legislation.
We have often talked about the complexity that exists in some parts of the Bill and the need to have complete and good guidance. Again, I just want to make a few points clear; I may have mentioned them in the past, but it is important when charities are looking to get the most out of the Bill that HMRC provides good guidance. HMRC has already started working on draft guidance, which it will share over the next few weeks with representatives from the working group in order to get their feedback. Once they have the initial feedback, they will publish the guidance before it becomes final so that a wider group of interested parties can read it and feed in their comments too.
HMRC’s final guidance will be produced at two levels. One will be entry-level guidance setting out the rules in a simple and approachable way supported, for example, by flow charts. It is anticipated that most charities will need only the entry-level guidance. HMRC will also produce more detailed guidance setting out with detailed explanations and many more examples how the law works. That guidance will most likely be of use to larger charities; members of their management teams can take the information and explain it to branches or parts of the charity that use the community buildings rule, for example.
HMRC will also support charity representatives who develop their own guidance aimed at specific sectors or their members. I think that that is a good thing. Some charities are large enough to want to produce their own guidance, and HMRC will work with them at an individual level to help them produce it, get it right the first time and make it as simple as possible.
We will publish the draft guidance in full in the new year after the Bill has received Royal Assent, so charities will have plenty of opportunity to see it, understand it and comment on it before the scheme gets up and running. As always, and as we rightly expect, HMRC will keep its guidance under review in order to take any new developments into account.
Turning to the five or six questions asked by the hon. Member for Harrow West, I have noted his questions, as have officials. I will have that information collated where it exists, and I am happy to write to the Committee to provide it. If he wants to use similar information on Report, hopefully that will be useful.
The hon. Member for Foyle raised the issue of a legislative consent motion with regard to Northern Ireland only. I take his point. It is well intended, and he raises a valid issue. He might not agree, but I have given reasons: HMRC will provide information regularly, on a more than annual basis, and we as a Government have committed to review the provisions in three years’ time. If I understand correctly, he would like a commitment on the face of the Bill. For the reasons that I explained earlier and would like to avoid having to explain again, I do not think that it is necessary to put it on the face of the Bill. The Government have committed to a review of the Bill and its workings in three years’ time.

Mark Durkan: In making some of that information available, will HMRC be able at some point to profile it on a territorial basis? I do not mean that absolutely every report should detail what the numbers are for Northern Ireland or Scotland, but can HMRC make a commitment that at some point from time to time, it will give an intelligible, articulate account of what is happening?

Sajid Javid: If the report does not go far enough in terms of the information that the hon. Gentleman is looking for—I am not sure how much detail he wants at a territorial level, but let us assume that some detail exists—once the Bill receives Royal Assent and charities start to benefit from the scheme, including, I hope, many in Northern Ireland, he can write to me when further information would be useful to him and his colleagues in Northern Ireland, and I will consider it carefully and respond.
I hope that I have addressed the points raised by the new clauses and assured hon. Members that they are unnecessary because the Government are already doing what they ask of them. I ask the hon. Member for Harrow West to withdraw the new clause.

Gareth Thomas: The Minister was characteristically generous in his opening remarks and helpful in his willingness to get answers to the questions triggered by the NCVO's letter. We will reflect on what he said and his response to the new clauses. We take extremely seriously the point that my hon. Friend the Member for Foyle made about our responsibility not to forget the debates that we have in Bill Committees. It would be helpful to write into the Bill the trigger of an annual report, to ensure debate on the scheme’s eligibility criteria and how they have bedded in and played out in practice.
The hon. Member for Stafford encouraged us to see the scheme as a glass half full. I accept that it is a bad analogy, but the Opposition see the scheme as a glass 20% full, so we want to continue to press the Minister. He was not at the helm when the Bill was introduced and we accept that he has sought to respond to some of the charity sector’s concerns. Nevertheless, we hope that he will use the period between now and Report to recognise the case for further reform and that, with hindsight, he will welcome the trigger of an annual report as a means of delivering further reforms.
The Opposition recognise that the Minister is at the start of his career. We want to protect him from the charge of those hard-hearted souls on his Back Benches, who might want to cast him in such a light, that he is in danger of becoming the Minister for red tape. I gently tell him that 80 pages of guidance about registering for gift aid and another 80 pages to come about the scheme ought to worry him. It certainly worries us.
We fear for many of the small charities that would find £1,250, or even half that sum, extremely beneficial in keeping them in business. I say that on the day it was revealed that four fifths of the charities that belong to the National Association for Voluntary and Community Action—the smallest ones—expect their finances to get worse over the next 12 months. This £100 million scheme could be their saviour, but I fear that far too many will not benefit. For that reason, I am afraid that on this occasion the Minister has not convinced me to withdraw the new clause, so I wish to push it to a Division.

Question put, That the clause be read a Second time.

The Committee divided: Ayes 5, Noes 10.

Question accordingly negatived.

New Clause 3  - Complementary Gift Aid for small donations to small charities

‘(1) Smaller charities, community amateur sports clubs or recently established charities, which do not meet the eligibility criteria in section (1) shall be eligible to apply to HM Revenue and Customs for complementary Gift Aid for small donations.
(2) “Small donations” for the purposes of complementary Gift Aid shall be as provided for in section 3 and the Schedule.
(3) The maximum donations limit for complementary Gift Aid shall be £5,000.
(4) The “connected charities” conditions in sections 4 and 5 shall also apply for charities making claims for complementary Gift Aid for small donations.
(a) HM Revenue and Customs may stipulate the supporting verification it may require from relevant agencies or authorities or designated persons in respect of any claims for complementary Gift Aid for small donations to small charities;
(b) such agencies, authorities or designated persons may include Charity Commissions, local government officers, police or police and crime commissioners or others designated by devolved administrations in agreement with HM Revenue and Customs for these purposes.
(5) This section shall come into force on 5 April 2014.’. —(Mark Durkan.)

This would provide for a separate scheme of supporting payments from HM Revenue and Customs, in the spirit of Gift Aid, to smaller or newer charities including those formed in response to a particular event.

Brought up, and read the First time.

Mark Durkan: I beg to move, That the clause be read a Second time.
Before I speak directly about the new clause, given that we have ample time—until 8 pm—I want to pay tribute to the contribution to the overall working of the Committee by Members on both Front Benches. The Minister rightly acknowledged the contribution of Opposition Front Benchers and others. I have been impressed by the spirit of the contributions of all hon. Members in terms of practical questions and ideas about the content of the Bill and some of the amendments. I have detected in the discussions that many Members, not just Opposition Members, would like to see the scheme, which will be good and offer benefits to many charities, made a bit more effective, a bit more accessible—if not now, at least in the future.
When the Government first promised the measure, many people’s emphasis was on the small charities that would be able to get the equivalent of gift aid on small donations without having to go through all the gift aid forms. We were told that it was going to be a great reward for the tin shakers and everybody else who goes out and does good things in the context of the big society. However, without going into broad details, the Bill as drafted gives us much narrower grounds for anticipating who will benefit.
The hon. Member for Harrow West made the point that the NCVO and others have expressed concern that nothing like the broad sweep of charities that we all hoped would benefit from this change will be able to do so.

Gareth Thomas: I should perhaps in my comments have highlighted the written evidence from Camphill Scotland and from other small charities worried about the complexity of the Bill and fearing that they will not benefit in the way the hon. Gentleman describes.

Mark Durkan: I thank the hon. Gentleman for that point. The Committee received written as well as oral evidence that reflects that many small charities do not qualify for this scheme, may not qualify in its first year or two, and may find it testing to qualify at a later date. I will go into the reasons why some charities might find it harder to go down the gift aid route as a way of qualifying for the top-up benefits.
Earlier in our discussions, I said that the Government had produced a scheme for supplementary gift aid for those charities that use or will use the gift aid system. What I am trying to do with new clause 3 is effectively offer a complementary gift aid scheme that could be available to small charities that do not meet the eligibility criteria for the Government’s supplementary gift aid scheme. That would ensure that smaller charities can get the same benefits from the complementary gift aid scheme as larger charities using the gift aid scheme. It would also help some newer charities, not least charities that are formed in response to particular events, such as natural disasters, tragedies or the impact of serious crime on a community. We all know of many charities that are formed in those circumstances. It seems odd that we as parliamentarians should determine that such charities be excluded from a fairly modest top-up payment scheme with a maximum of £1,250 to complement £5,000 of donations.
I have posited before in Committee that, as well as the Government’s route 1 option, as provided for in the Bill, we may need to develop a route 2 option through which smaller charities not working gift aid qualify. That is essentially what I am trying to do with new clause 3. I know that it will take time for such a scheme to be worked up and that is why the new clause provides for a later commencement date. The complementary scheme for donations to smaller charities would not come in until 2014, because HMRC would want to be protected against fraud or abuse if it were to make payments of this nature to smaller charities that did not fulfil the gift aid criteria, for the reasons that the Minister emphasised. That is why new clause 3 indicates that, in developing such a scheme, HMRC could
“stipulate the supporting verification it may require from relevant agencies or authorities or designated persons in respect of any claims for complementary Gift Aid”.
We have referred from time to time to the fact that there are different charity regulators in different parts of the UK and the new clause refers to them. Given that many charities collect money on the basis of licences issued by the police, the police could indicate verification by saying, “Yes, we licensed that collection for this small local charity. We can confirm that that was the money that was collected.” It might be a role for the police and crime commissioners that are to be elected. I am not sure what they are going to do, looking on from Northern Ireland, but they might provide a useful point of liaison between the function of police licences and something that is then being administered on behalf of central Government. They could certify that the collections had taken place.
Often, when charities are set up in response to particular dramatic events in a community, local authority figures, whether the mayor or the chief executive, are used as trustees so that people are more widely reassured. Those are the sort of people who could be used as validators or verifiers for HMRC. Under the new clause, HMRC would also have the power to indicate that certain professional classes, for example, accountants, might be able to verify. The Committee’s attention was drawn to the fact that there is the defunct self-assessment giving scheme, and some of the logic and rubrics of that could well be used in this situation.
If the Government have conceived a scheme that is effectively a lean-to on the gift aid system and are absolutely minded to use it as their route 1 for most charities and for supporting giving by getting some money back from the taxman, because they want to ensure that they can build on the intelligence, understanding and rapport that HMRC has with charities on gift aid and because they do not want to set up a completely separate scheme from that which those charities would be using, it should not be beyond their ken to develop a route 2 option.
I do not pretend that all the details that I have—and certainly not the details that I do not have—on new clause 3 make this the perfect scheme by any means, and I have no doubt that a schedule and so on would be needed to go with it. I know that some Government Members are concerned that perhaps more charities should be included and eligible in future, and I hope that they will accept that there is merit in at least keeping open the option that there should also be a route 2.
I have ensured that the terms on which I have offered the new clause do not include any conflict with connected charities issues. Although I have reservations about the clauses on connected charities, I would not want any jiggery-pokery to enable people to apply under one scheme as a way of getting round the connected charities provisions that are stipulated elsewhere.
Equally, the new clause makes it clear that the amount of money involved would be the same as the small donations limit, which is currently £20. It would be the same for my scheme and, similarly, for the overall cap of £5,000, so £1,250 would be the maximum sum given.
There would be no conflict, and it would be a way of extending the logic and the benefit of the measure to other charities. The later commencement date would provide time for the inevitable work on the detail. That would include consultation with the devolved authorities, the charity regulators, perhaps some relevant Departments in the devolved Administrations, and other agents.
I do not repeat the problem of the matching principle, because there are some problems we would certainly not want to extend, but I took great heart from the Minister’s indication that that is one area that he is most minded to consider revising. The new clause would be free of some of the complications because the charities involved would not necessarily be caught up in all the difficulties that arise with community buildings.
Many hon. Members believe that this is a good scheme, so why would a few charities, in a few years, want to use a route 1 or route 2 way to obtain complementary gift aid, as opposed to every charity taking the gift aid route and then the top-up that the Government offer in the Bill? Many charities are convinced from experience and anecdote from others that the gift aid scheme is hard and not worth while, and will resist opting into the scheme as a way of trying to get the top-ups. If they have not used gift aid so far for what it can offer them, the suggestion that they would use it just as a way of getting top-ups is not convincing.
Some charities with a particular profile, or that fundraise in a particular way, such as those that rely on involving young people and schoolchildren and people going out and shaking tins or doing street collections, will not be particularly interested in asking people to fill in gift aid forms and to make the necessary declarations. The way in which some charities do their business is a reason why some of them do not do gift aid.
Some charities want to leave room for others, and to respect their different ambits. Many charities in my constituency are clear about going out and raising the money they need without intruding on the space or interests of other charities that may be more developed and established, and have a strong gift aid dimension to their fundraising. Charities can avoid apparent competition with one another and can complement one another by having different fundraising profiles, which are then reflected in whether it is feasible for them to rely heavily on gift aid.
In addition, as we heard in evidence sessions, some people are very resistant to making gift aid declarations, not least when it comes to smaller donations, because they feel a bit embarrassed about filling in a declaration for what might appear to someone else to be a small amount of money. Other people are reluctant to fill in gift aid declarations, because they suspect that that will be used by charities to target them with all sorts of postal requests, lots of books of raffle tickets and so on or that their details will be passed on to other charities. Many people have their own aversion to making gift aid declarations. Charities will have their own reasons for perhaps not wanting to invest a lot in the gift aid route. It may be that individuals are comfortable with giving donations and not having to make gift aid declarations, and that that is part of their relationship with particular charities. I think that that should be accommodated in the future. This is meant to be a Bill about the big society. It is a Bill on the principle of small donations, but it should extend to small charities as well.
I know that the hon. Member for Banbury cannot be with us this afternoon, but he has reminded us several times during our proceedings that the Church of England is very content with what the Bill does for it. I have no doubt that the Catholic Church, because of some of the particular issues that have been sorted out, not least in relation to community buildings and so on, will be very pleased about what the Bill does for it as well. However, I am sure that both those Churches, as part of their pastoral outlook, would have some concern or regard for the many other charities that their members participate in and support, and that other people who are not members of any Church might support very actively as well. There are many other smaller charities that are left out.
It is not enough for us to pick our charity or charitable interest and say that it is okay with the Bill. That is like what the old Tennent’s advert used to say: “I’m okay. I’ve got mine.” Yes, many Churches are okay; they have got theirs. Some of the bigger charities qualify immediately—from day one—for this scheme. That is no big effort for them. I think that we should try to see how, learning from this scheme and without doing injury to the scheme that the Government have carefully put together, we can open up the Bill to other charities. The Minister has resisted many Opposition amendments because he thinks they would open up all sorts of fraud issues or abuses, but this new clause offers a different way from the previous Opposition amendments of opening up the logic and benefits of the Bill to other charities. I therefore ask the Minister and other Government Members to consider it.
I know that the Minister will not be able to agree to the proposal today. Before any Government Members become concerned, I assure them that I am simply speaking to the merits of this new clause today. I will not be pressing it to a vote. I would not subject hon. Members to the difficulty of voting against a measure that I think many of them in their hearts support, and that I hope we can all look forward to supporting in the future. If that is not possible in the course of our proceedings, perhaps it can be part of the first review that the Minister has promised us.

Sajid Javid: I am grateful to the hon. Member for Foyle for tabling the new clause for debate. Throughout this debate and the others we have had, he has made excellent, thoughtful and very well intentioned contributions. The new clause is another creative attempt at an alternative way for certain charities to become eligible for this scheme, as I will go on to explain. In fact, it would create a new scheme altogether—a separate scheme for those charities not using gift aid and therefore not eligible for the small donations scheme. There are a number of problems with the hon. Gentleman’s proposal. First, I shall remind hon. Members why the link to gift aid exists. As we have said from the outset, this scheme complements the current gift aid system. It is a top-up system, as opposed to a tax relief system. As we have discussed a number of times, because the gift aid system requires declarations and information from people making donations, there is an audit trail that can be followed if HMRC needs to, so it comes with added protections—the fit and proper person test and so on. Under the Bill, we have a cash-based system. There are a lot of reasons for doing that, which we all agree on, but unfortunately they would open the scheme up to fraud if we did not have adequate safeguards. I will not run through all the safeguards that the link with gift aid provides again, but we have discussed why they are important. It is safe to say that without the safeguards, the level of risk to the public purse would be simply unacceptable.
The new clause suggests that for small or new charities, HMRC could gather information from other agencies to check that they are honest. That suggests a significant administrative burden on HMRC to verify each and every charity that applied through this route. Without strict eligibility criteria, HMRC would be required to make very subjective judgments about whether a charity is in or out of the scheme. It would mean that the Department would be constantly at the risk of legal challenge to the decisions it made.
Let us think about the case of a new charity starting up. It is small, and so is not required to register with the Charity Commission for England and Wales. It has just been set up so, until it has raised some money it cannot spend any, so there will be no record of its spending money for charitable purposes—or not, for that matter. How is HMRC supposed to be able to tell whether it is honest or not? What documentation could it rely on to tell it that the people behind the charity could administer a cash-based scheme correctly? That is why we have made a link to gift aid that helps HMRC to see how the charity operates and gives it a good guide to the charity’s likely compliance with the scheme.
That brings me to my next concern, which is about the boundaries regarding which charities are in or out of the new scheme. The hon. Gentleman has not specified what the definition of “smaller” or “newly established” charities would actually be. That prompts the question of how charities are going to know which scheme they are supposed to be using. It would require more subjective judgment by HMRC to decide who was in and who was out, and that creates more of a risk of legal challenge.
I appreciate that the new clause is well intentioned and encourages us to have a useful debate. I understand the hon. Gentleman’s concerns about charities that will not immediately be eligible for the small donation scheme, because they do not have a track record of gift aid claims. However, it is in charities’ interests to start using gift aid where they can, and we should be trying our best to encourage them to do so. It is not capped for each charity in the same way as this scheme, so charities can claim tax relief on all donations they get from gift aid declaration. For straightforward donations of money with no benefits attached, gift aid is a simple scheme to operate, and with the new IT system coming in next year it will be even easier for charities to claim.
I thank the hon. Gentleman for his new clause and the debate he has encouraged, but I kindly ask him to withdraw it.

Mark Durkan: I thank the Minister for his complimentary observations. I have indicated that I do not regard the new clause as complete and perfectly formed, even for the purposes for which I am offering it, so I will of course withdraw it. I said earlier that I would not want hon. Members to vote against the spirit of something that many would probably like to see at some point.
The new clause would allow HMRC to stipulate the verification it needs, and essentially to draw up the scheme. It would answer our many questions about the practicality of the scheme and the associated regulations and guidance. If the Minister can resort to similar measures to deal with some of the vexed questions he has faced, I would like to do the same thing.
New clause 3 would allow HMRC to sift through the details it considered necessary. It could determine the definition of recently established charities and devise an eligibility test. I gave examples of recently established charities that often use people who are in local government as part of their set-up and assurance. HMRC would be able to decide how to satisfy itself of the bona fides of a charity; it would not simply have to take the charity’s word for it. HMRC could ensure that the verification arrangements were sufficiently testing to safeguard against possible abuse.
I am not saying that the scheme should be drawn up lightly or frivolously. HMRC must be satisfied that it will not be making payments to people who will not use them for the due purposes. New clause 3 does not offer an easy get-around, but it is an attempt to offer charities a genuine route to a benefit that many of them expected to get. The consultation exercise showed that many charities were disappointed because the Bill was not what they expected it to be. When the Government first announced the legislation, Members from all parts of the House welcomed it as a good idea and thought that it would really help small charities, because it would not rely on the red tape of gift aid. It was going to offer something beyond that, but, lo and behold, that is now what we have.
The Chancellor announced a worthy measure and a good initiative, but it is as though there is some sort of strange predictive text programme in the Treasury that takes a good idea and turns it into the gobbledegook that we see in certain aspects of the Bill, which pre-empt all sorts of possible wheezes and abuses that people might get up to. As far as the primary scheme in the Bill is concerned, I understand why the Minister has been wedded to such measures. I believe, however, that there should be a secondary scheme in the same spirit, under which HMRC can satisfy itself of the bona fides of a charity and the people who run it.
I do not accept everything that the Minister has said in opposition to new clause 3, although I could have offered some practical criticisms of it and the wrinkles it might create. I hope this debate shows that many of us in Parliament want to keep alive the option of admitting more charities to the scheme, and that we are not content to leave it at that, just because some of the Churches are content with their treatment. More should be offered to other charities, and I hope that after the oft-promised review, at least, an idea such as this will be allowed to grow legs. With that, I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

Question proposed, That the Chair do report the Bill, as amended, to the House.

Sajid Javid: On a point of order, Mr Robertson. May I first take this opportunity to thank you and your co-Chair, Mr Turner, for the way in which you have chaired proceedings? In both the evidence sessions and the scrutiny sittings, you have between you ensured that we made good progress and kept us on point when we were in danger of straying too far from it. I thank my hon. Friend the Member for Chelsea and Fulham and the hon. Member for Clwyd South, who have developed what I would call a good working relationship on the Bill through the usual channels.
I thank the Committee Clerks and the Hansard reporters, who had to make sense of our speeches over the past few days. My thanks to the doorkeepers and the police, whom we have not troubled too many times with Divisions—just once, I think. That leads me to thank the hon. Members for Kilmarnock and Loudoun and for Harrow West for their support for the Bill and for leading the Opposition’s scrutiny of it. I think they will agree that we have had a good, constructive debate. I also thank my hon. Friends for their contributions.
We have had an excellent debate on the things we have focused on—the key issues at the heart of the legislation. We have also discussed Kafka and the relative merits of Harrow and Eton. I cannot speak for other Members, but I certainly learned some new things during our debates. I very much enjoyed hearing from my hon. Friend the Member for Banbury about his enthusiastic support for his constituency’s branch of the Sea Cadets, but it was news to me that his Oxfordshire constituency is by the sea. I learned from the hon. Member for Foyle that he finds that HMRC officials have no social skills—for the record, that has not been my finding.
Lastly, I thank the Bill team and parliamentary counsel for doing an excellent job in putting together the legislation. Thank you, Mr Robertson.

Cathy Jamieson: Further to that point of order, Mr Robertson. I, too, would like to add my thanks to everyone who has participated in the Committee and in getting us to a fairly speedy conclusion, given that we could have spent a great deal more time deliberating on the detail of certain clauses. It has been the Minister’s first opportunity to take a Bill through Committee, but I understand that he is about to move on to the next one, when he and I will face each other across the Committee Room yet again, discussing something else in the not too distant future.
Mr Robertson, I thank you and Mr Turner for some excellent chairing. You allowed us, as the Minister said, to explore the wide range of issues that needed to be explored; none the less, you kept us to task when we were in danger of drifting slightly too far from the clauses.
I add my thanks to the Committee Clerks and to the Hansard reporters, in particular when they had to make sense of some hastily scribbled notes or even of no notes at all. I thank the doorkeepers and police, whom, as the Minister correctly said, we did not give too much to do. I also thank everyone who has worked behind the scenes on the Bill to ensure that the Minister had inspiration when necessary and could bring forward information when we needed it.
I wanted to make special mention of the parliamentary draftsmen and women. I think I made a few references to them during the discussion, but I would not want them to think that that was intended as any personal criticism. I understand what a difficult and complex job it is to ensure that we have a Bill drafted in a form that allows us to take things forward.
Again as the Minister alluded to—I am beginning to worry that I am agreeing with him too much, and that we seem to be thinking along similar lines—the Bill has led us to discussions about not only Kafka but, in the early stages, Alice in Wonderland, which worried me slightly. I was relieved when we moved on to Eton and the 2nd Bromsgrove Scout Group, which seemed to become the focus of things in the real world rather than in our imaginations.
I thank the groups and individuals who gave evidence and provided briefings and real-life examples of why we needed to work to improve the Bill. The same applies to Members in all parts of the House. I thank the members of the Committee, not least my hon. Friend the Member for Harrow West, who gave us a record 17,000 words on a particularly complex part of the Bill—a feat that I was not able to match in any shape or form.
We have had an excellent series of sittings. The opportunity to consider all the issues relating to the devolved Administrations has also been important, and it has been useful to have Committee members who understood that. On that note, the Committee has shown that when we work together, we are better together.

Question put and agreed to.

Bill, as amended, accordingly to be reported.

Committee rose.